Daniel Urdaneta

Timid long on SPY - Indicators suggest a triangle, not H&S

I opened a long position in SPY             at the friday's crazy sell-off close (heard some chatter of end of month index rebalancing, and given the crazy spike in crude oil             , these prices aren't confirming the support break that many people wish for, in my view). I base this trade on some positives the market doesn't seem to be taken into consideration, and could lift equities for the next week:

- Solid earnings for some large caps ( AAPL             the clear winner of earnings season, but some consumer discretionary, financials and tech names also impressing; NFLX             up +30% on the month to give an example).
- European QE which is an obvious risk-on factor.. I expect some comments over the weekend regarding this matter.
- Short-term technicals suggest we're at oversold/support levels (trading near the lower Boll band, and tightening bands; positive divergence on the daily RSI ; trading inside the Ichimoku cloud , which suggests indecision more related to range-trading than a downtrade).

All taken into consideration, I am wary that sentiment is becoming more bearish by the day on the market; hence I'm placing a stop at the lower Bollinger Band (maybe a bit lower to avoid algo stop-hunting), and also hedging with long USTs positions.

The rationale of the trade is LONG but only for the week (I think a triangle formation is coming to shape here, so obviously makes sense to go long at these levels). I do think equities are headed for lower lows in the remainder of the year, but this is not the time to start the downtrend.

PS: Bullard Warns of Asset Bubble Risk If Fed Keeps Rates Too Low... watch out for panic selling ahead of an early June hike! That would be a clear sell signal. But for now we're heading for a triangle, not H&S .
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